The antidote to ideologies

Without massive debt forgiveness and a new capitalist model, there is no alternative future.

The US public debt climbed to $14.58 trillion at the end of August 2012. This made it slightly bigger than the $14.53 trillion size of America’s GDP in 2010.

I typed that fact in bold because I’m beginning to wonder what it takes to make global citizens wake up to the fact of America’s depth of indebtedness. The planet’s pivotal economy will, from here on in, be required to make an extra 10cents on the Dollar export profit each year – at the rate of the total deficit in turnover – to start paying off any of the debt. (And that assumes interest rates and import tariffs stay exactly as they are).

Here’s another fab factoid:

The deficit – that’s the annually accruing debt – is now perilously close to being 10% of GDP. This means that, even if earnings stay as they are, the USA will be treading water before it earns a single cent by the end of 2023.

The only way in which that extrapolation is simplistic involves the assumption that things will remain as now. That is highly unlikely: America faces the same global depression as the rest of us, and is losing share of global trade every year. The United States is piling up foreign debt and losing export capacity, and the growing trade deficit with China has been a prime contributor to the crisis in U.S. manufacturing employment. Between 2001 and 2011, the trade deficit with China eliminated or displaced more than 2.7 million U.S. jobs, over 2.1 million of which (76.9%) were in manufacturing.

A total of 453,100 jobs were lost or displaced from 2008 to 2010 alone — even though imports from China and the rest of world collapsed in 2009 during the height of the global financial crisis.

Neither QE1 or QE2 changed that situation to the slightest degree. But Ben Bernanke declared last Thursday that he’d do “whatever it takes” to lower stubbornly high unemployment with a third bout of QE. I’m told that this bout will be different and better. But if so, why wasn’t it tried at the 1 & 2 stages? And will it be different? I doubt it: and Reuters agrees with me (my emphasis):

‘By giving an open-ended commitment to pour money into the market for mortgage-backed securities, the Fed will likely keep on supporting stocks and other asset classes by keeping returns low on MBS. Investors in search of yield will have more reason to buy equities and to lend money to companies. Peter Hooper, an economist at Deutsche Bank in New York, thinks the Fed’s bond buying program will add at least a half a percentage point to gross domestic product over the next year, largely by boosting stock prices and making people feel more wealthy. “The main transmission mechanism is through the stock market,” Hooper said.’

Sounds like the same-old-same-old to me: the stock rises will increase bonuses and dividends for the rich, piling yet more money into the already obscenely wealthy 3%. And the money will be lent to large multinationals, to fund mergers and kill/move offshore yet more US jobs. Ratings agency Egan-Jones has this to say:

‘The Fed’s new round of quantitative easing, or QE3, will hurt the U.S. economy. The Fed’s plan of buying $40 billion in mortgage-backed securities a month and keeping interest rates near zero does little to raise GDP, reduces the value of the dollar, and raises the price of commodities. From 2006 to present, the US’s debt to GDP rose from 66% to 104% and will probably rise to 110% a year from today under current circumstances; the annual budget deficit is 8%. In comparison, Spain has a debt to GDP of 68.5% and an annual budget deficit of 8.5%.’

At Jackson Hole in 2011, Bernanke told his audience that the Fed “has lots of alternative strategies still to be tried”. Is this latest repeat seen as an alternative, or is Benny waiting until he’s more double-dog certain that Armageddon is the only alternative to some creativity being applied to the problem?

Look across the Western world: in the UK, over £400bn has been thrown at QE, to no effect. The expenditure has dwarfed any savings made by Chancellor George Osborne, and the economy continues to flatline, with the only job creation occurring thanks to lower wages and shorter hours. The debts of all EU States (but especially the southern members) are astronomical: Greece has no chance at all of repaying hers, and both Spain and Italy are heading down the same road. If Germany commits to being the last resort saviour of the eurozone, its fiscal probity will implode. But Mario Draghi is now set to embark upon ‘unlimited’ bond buying…aka, QE.

Bernanke, Osborne and Draghi are pissing against a Tsunami. The Establishments have run out of ideas, and people around the world know it: that’s why the megamoney has started investing bigtime in property and gold. Because fiat currencies are being eroded by treasury thinkers who believe (along with the risk-taking banker/bondholder axis) that somehow, over time, the populace can be used to monetise their fantasies.

None of this matters any more. The calculations of the self-styled clever are so hopelessly out, so ridiculously poorly thought through, the elastic will snap and create a hyperinflated global slump long, long before any of the crazy obligations they took on have been soaked up by the mugs. Only then will somebody with courage wake up to the only solution: wind the debt/surplus clock back to zero, or face a future in which nobody can afford to export, because nobody can afford to buy.

At that moment – who knows? – it might occur to the mercantile globalism fanatics that we need a real alternative.

The whole thing is designed to recapitalise US banks, reduce the price of the dollar so that imports become more expensive and exports cheaper (thus encouraging people to buy American) and boost 401K before they get hit by a generation of poverty-stricken middle class pensioners.

It avoids completely the core of the problem – lack of consumer demand due to lack of diposable income.

We need a complete change of Government, where there are ministers with no ‘skeletons in the cupboard or bodies buried’ that way they can kick out all the Sir Humpries with impunity, sack the frickin’ lot of them, get rid of all the quangos and remove all the money from politics.

I’ve said, since this whole thing kicked off (and I’m not claiming credit for something that others have also said), that if they’d let the too-big-to-fails go under and sold the ‘assets’ (only banks could consider debt as assets!) to smaller, better managed banks (and yes, there are many) AT MARKET VALUE, we’d be on our way out of this, notwithstanding the problems associated with the levels associated with personal debt.

Finally, JW, you got it. Globalization in a world where Western nations have a minimum wage of $10 and others work for pennies an hour results in mass unemployment in the West.

Nothing hard to understand about that really, is there?

As for the solution, maybe you’ll tumble to that too, in due course, that solution being, obviously, wage equalization (I’m assuming here that tariffs, etc. will not be tolerated by the plutocratic elite who own the political system).

So thetough question is, how do you drive Western wages down, when wages in Asia are so stubbornly slow to rise?

The answer is really not that difficult to figure out: currency devaluation. The smart money is invested in real assets that do not depreciate, the middle class lose all their savings and workers take wage cuts in real terms, without really knowing what’s hit them.

Americans have already taken huge real wage cuts over the last few years, while their net worth has been slashed by 40%. Europe is out of step. Time to catch up. You should applaud Ben Bernanke not carp about the Fed adopting the only feasible means to end the depression.

I believe that the QE3 is aimed keeping the pension funds afloat as well as the wealth effect cited. The money flowing from QE3 keeps bond prices low so retirement funds need to look elsewhere, they turn their attention to the stock market to get the returns they need to pay the obligations to their pension funds.

The wealth effect is often cited for QE3 but I don’t read much about Ben trying to prop up the pension funds. If they go under they will take (on this side of the pond) all the state and local governments with them.

Benny and the Jets only have one tune. And they’ll play it as the ship sinks.

If I was holding US debt (a la china and chums) I’d be dumping it like the toxic crap that it is and preparing for the next hegemony (a la china and chums). The positive side of this is that the fed will pretty soon be far and away the biggest holder of US government debt. In short order, they’ll be taken down by it.

As the downward spiral continues it needs a brave man or woman to say that all ‘Bale Outs’ are ‘Debt Forgivness’ and not loans. Does anyone here think that Greece (as long as it stays in the EZ) can ever pay back any of the past bale outs or those presently mooted. Does anyone think that the EUR 100B’loan’ to Spanish banks …if it happens…will ever be seen again by the ‘lenders’…..anyone think that all the banks of Southern Europe who have taken huge LTRO loans are going to be queuing up, cheque book in hand in 18 months time to pay it all back on time? Or the Irish or Portugal, Cyprus, (Slovenia, Hungary etc)…can really fix it………….stopping spending more than they earn is a hell of a challenge….paying it back through renewed growth with a vastly overvalued currency……….Derrr …No !

………….Any money that the bale out nations above have had already or are about to get is going to become ‘non money’ very rapidly…… used to pay debts…there is zero or negative growth, so how can any of these debts be repaid? IMHO, Bale Outs, Bond Buying and any other devious scheme …….is all going to HAVE to become debt forgiveness……….the alternative will be that the PIIGS + another 4-6 EZ countries will ultimatly go bust…….No one is even looking at the fundamental problems of competativness because they are all trying to save a Flawed Political Dream and Real Economic Nightmare…….So I agree with JW and have done for some time….Its a choice of Debt Forgivemess or Defaults all round and reboot EVERYTHING

Maybe someone should invent a killa computer virus that knocks the last 6 000’s off of every nations balance sheets on the planet….or moves the decimal point six places to the left ;))

I think you mean “state sponsored theft”. Don’t pretend that the feds actione aren’t self serving. They’re on the edge and pulling out the last of the tricks they have left in order to save their own asses.

Sadly that means exporting inflation to the rest of the world and by association, severely damaging the lives of millions of people.

Applaud him? Give me a break. Bernanke and his ilk should be hung in public with piano wire.

Your suggestion is to tell people to be happy to be poor. Because you believe that their market manipulation will succeed and bring western competitiveness in line with Asia. What will actually happen is that it will overshoot and end in disaster. Will you still be applauding him then.

QE is a welfare system for the broken bankers, in exchange for all their toxic junk securities.
Both the USA and the UK have been heavily reliant on the financial sector to generate taxes. Both economies are unbalanced and have lost their wealth creating manufacturing bases to Asia.
The banking sector has been akin to a vulture feeding on the corpse of the real wealth creating sector.
Corporatism has broken the unwritten social contract. They have chased their profits worldwide. Transferring their manufacturing facilities and jobs to Asia .looking to increase their margins using cheap labour. This has left a wasteland of unemployment in the Western nations. The cause of this is the GATT treaty, which allows free movement of capital & floating exchange rates between its members
Corporations have a duty to ,not just make profits for their shareholders ,but to share the benefits with society, in the form of employment.
Without industry & jobs their is no cohesion in a society, there are no taxes to collect. A country becomes poverty stricken because it is not generating wealth. A society spirals down into anarchy and despair.
Pumping money to the banking sector,just devalues the pound in our pockets by inflation , it is nothing but plunder and theft of the citizen. Money directed to the FIRE sector ( finance ,insurance ,real estate) is dead money. It does not create jobs or wealth. It vanishes into a black hole as witnessed by Mervyn Kings £440 billion of QE.
QE requires to be directed to productive industry to create real wealth and jobs.
Income taxes and corporation taxes will cancel this money. this is real investment.
The productive wealth creating industries are Agriculture, mining , fishing , manufacturing,steel etc.
Banking creates nothing except inflationary,debt based money. Money is not wealth,it is a means of exchange,a token , a tool to enable trade and industry
Our present problems are caused by too much money and too little assets (wealth).
The bankers are clinging to the illusion that this paper can be converted to wealth. The only solution is to cancel this overhead of debt money and return to the correct use of money as a tool of industry.
This is the battle that has to be won, but we do not have the politicians on our side, they are either too dumb or suborned by the revolving door to the money troughs of the City.

@GrahamD: ‘No one is even looking at the fundamental problems of competativness because they are all trying to save a Flawed Political Dream and Real Economic ‘
That’s the bit I couldn’t get my head round. And, ironically they are still turning a blind eye to it.

Canspeccy
It really is irritang when people are patronising. As I keep saying, I’d prefer to hear from people who know something, not everything.
If you’re so all-knowing chum, why are you dicking around on this thread rather than investing in what you’re certain will happen?

Insofar as Draghi is intent on debasing the Euro, you’re right, he’s following the same script.

Unemployment in Europe is worse than in Spain, Greece, Britain and much of the rest of Europe and the reason is the WTO and the 1994 GATT agreement which opened the west to competition with Asians working for pennies an hour.

In 1994, Asians wages were 3% of those in the West. Now they are 4 or 5%. Until we achieve equalization, jobs will continue to bleed to the East. Meantime, smart, energetic, ambitious, hard-working, Asians, Africans and Middle-Easterners will move west and take the jobs that still exist from the less competent half of the Western workforce.

How to end the depression. There is only one possible solution, which is to lower Western wages, which, as a practical matter, can only be achieved by currency debasement.

And that is the only a possible solution because by the time wage convergence is achieved between the West and the Rest, technology will have eliminated many jobs and the Western workforce will have lost the necessary skills to command many of what jobs remain.

“If I was holding US debt (a la china and chums) I’d be dumping it like the toxic crap”

This would suit the US well. It would end China’s currency manipulation, reduce the ultimate cost of redeeming all those foreign held dollars, and give American workers a better chance at a job in manufacturing or tradable services.

Hello John, hope all is well,The Murdoch propaganda sheets have been so successful,some believe the Earth is still flat.Now which will change the world, me writing a letter for every £ or equivalent these idiots print,or let the sun force the coats of the back of the populace through their idiotic bigotry

The problem folks is simply massive rent seeking behaviour that has been condoned now for at least Thirty years and has sucked the savings and wealth out of Western middle classes. The repeal of Glass – Steagall set the stage in America and I suspect the nefarious rent seeking practices American banks then developed were copied in Britain and Europe.

But there is much more rent seeking behaviour than just the banks. It is pervasive throughout the American, British and some European economies (but I think not Germany), and until a concerted effort is made to deal with it, then nothing can improve.

My favourite example of rent seeking is the Louisiana florist licence – designed to protect the citizens of Louisiana from unholy floral arrangements.

Now multiply this stupidity a billion fold and spread it across the economies of the Western World and you can see what is holding us back – multiple layers of unproductive oxygen thieves, in Banks, city offices, schools, Universities, everywhere.

To put that another way, the fact that Britain has politicians like Blair, Cameron, Hunt, etc. inflicted on it can be traced in part to an inequitable education system that mostly produces privileged upper class twits.

To put that yet another way, my son spent summer Two years ago working as a sailing instructor near Edinburgh – he reported incredulously that the marina staff were made to wear life jackets and hard hats to perform simple maintenance tasks by the OHS numptys! Folks, this costs you money.

To put that yet another way, it is no accident that the Troika has required Greece to begin cutting out rent seeking behaviour, starting with liberalising entry into the professions and removing legislation limiting the working week to Five days.

You could call QE that. If you have cash and the government prints more, then your savings will depreciate in purchasing power. But is that reasonably called theft?

I think you have to consider the purpose. Some have said QE is a bailout for banks. Well insofar as that is so, is it really theft or is it simply the necessary action to keep in existence institutions without which the economy could not, under present arrangements, continue to function?

I have cash in the bank. In several banks, in fact. If those banks went bust tomorrow I would suffer financial damage as would millions of others. Unless you can think of a better monetary system, such as I have outlined here, for example, you’d be wise to want to keep the existing system in operation.

But as I have argued, the chief function of QE is to devalue the currency and the chief beneficiaries of that will be the unemployed whose labor will become more competitive internationally, as a result.

If you don’t like losing the purchasing power of your savings, invest them in real assets, which will in general do better than cash during an inflation. You might also take express opposition to mass immigration, which exacerbates the problem of unemployment in the West, even if JW does call you a bigot as a result.

A big big thing happened last week. Ben Bernanke became the government of the USA. And he wants to be a government by the rich, for the rich.
By monetising the debt, buying up the crap mortgage bonds, saying he will print forever and hold interest rates to zero, all (and only) for his friends on Wall St, he now runs the show.
For him to suggest that when the economy turns for the better (as if) he will be able to turn off the taps to hold off hyperinflation -and presumably force Wall St to buy back their toxic bonds and derivatives- is the sure proof of a clueless academic.
He is praying for a dollar crash to scale down the effect of the debt and raise exports, but can’t do much about the even-more-worthless euro, and can’t afford the equivalent rise in the dollar price of oil, rice, wheat etc. and the chaos it will cause in the third world -but does he care?
Indeed the free money he is giving to the market speculators encourages mischief in the commodities markets.
He won’t do anything to stop the corporate giants offshoring all manufacture and profits, indeed he will praise them for improving their numbers.
Who is there to stop him, now that they neutered Ron Paul through rule-changes, shenanigans and mainstream media suffocation?
Only an unrestricted web.

Only savers and sweat can ‘create’ wealth, everything else is smoke and mirrors and steals from the future. The US (& world recovery) will not come about until the banking system is destroyed.
So don’t hold your breath.

There is something not right about this new QE3. QE2 is still running yet they rush this in – and it does appear rushed – before QE2 is finished which can only mean that despite it still having 3 months to run, they already know it is going to be a colossal failure.

Has it been rushed to help Obama win the next election? Highly illegal but from Bernanke’s position who would he prefer as President? One he knows or one he doesn’t.

Or has it been rushed because there has been a ‘behind closed doors’ agreement reached in the upper echelons of the EU with regards Greece, Spain etc and he is putting damage control in place ready?

Or is something about to go bang in a big way – such as the middle east?

Completely agree about this being bank recapitalisation, and stock market levitation (whether for the benefit of pensioners, the very wealthy, “recovery optics” or financial institutions is questionable)

I’m becoming more sceptical of the whole “boost exports” line. Not sure I completely agree with the perceived wisdom.

Do iPhones become cheaper in Sterling because the Dollar drops ? Not really, same with Coke, or Fords or ….

For true fungible commodities this would be true (assuming equal transportation costs perfect markets etc.), but for the West with much higher value branded exported goods the prices will just stick at the £xxx.99 psychological thresholds.

What does happen is the big US corporates see big DOLLAR revenue gains, without actually producing or selling any more. Their costs don’t change, as income rates are flat, and they report bumper profits, further holding up their share valuations, and of course the CEOs bonuses!

Speccy I read your Numero scheme, The problem I see with it, as with all current monetary schemes is it relies on a central authority to police and monitor record the unit of exchange worldwide. (BitCoin is different in this regard)

It wouldn’t alter the problem of trade surpluses either. Resource rich nations will always concentrate the tokens of exchange as for certain materials, it’s pure luck if you happen to have a rare raw material in your own country.

Keynes actually had a scheme for this with his own Bancor currency, where countries with excessive surpluses had to pay penalties on balances if they exceeded thresholds, and these were redistributed to other nations.

Which President would Bernanke prefer? That’s easy enough to answer, after the blunder Romney made a few weeks ago.

“I would like to select … a new person to that chairman position, someone who shared my economic views, someone that I thought was sympathetic to the needs of our nation and I want to make sure that the Federal Reserve focuses on maintaining the monetary stability that leads to a strong dollar and confidence that America is not going to go down the road that other nations have gone down to their peril.”
– Mitt Romney, August 23

QE3 has been rushed because Draghi is printing to fund european economies, the euro will fall rapidly but the euro/dollar exchange needs to stay stable as it is in their trade valuations .Ben and Mario will print in sync .Synchronized printing ,soon to be seen in the olympic events .

opps mean’t to post like this.. the latest from jim willie at jackass.com

“No CB Solutions: Insolvency vs Illiquidity” — to emphasize the Jackson Hole was a conference for losers to apologize for their
failures, a gathering of empty echos from Davos, since the central bankers are not even attempting to move toward remedy, but
rather to retain power… they have nutball monetary policies in place, like the USFed to continue 0% until the USEconomy reaches
a certain GDP growth threshold, except that the 0% policy is a giant wet blanket on the economy that slows it down and kills the
capital base slowly… like the Euro Central Bank deciding to provide infinite bond purchases in order to prevent a bond yield threshold
from being reached, but always pressured… a real viable meaningful remedy toward recovery must involve liquidation of the big
banks, liquidation of the housing market, and return of industry from Asia, none of which is even discussed… the non-solutions to
date all are based upon amplified liquidity to treat grotesque insolvency, which fails as non-starter… beware of the Morgan Stanley
upcoming death event, as its firm failure will likely result in a few hundred thousand private stock accounts vanishing, since the
progression from futures account vanishing acts will move to stock accounts vanishing acts… the Gold & Silver markets have begun
to perk up with important breakouts in early movements toward significant reversals, onward & upwardhttp://www.financialsense.com/contributors/jim-willie/no-cb-solutions-liquidity-vs-insolvency

Being a pedant I am somewhat confused (my increasingly standard state nowadays) by your headline numbers for US ‘public debt’ of a mere $14.5 Trillion, what debt does this refer to, as I have believed that when recently the US Gov raised the debt ceiling from low to mid $15 T to $16.1 Trillion the debt was already above $15 Trillion, further I have been reading that they will need to raise the debt ceiling certainly before year end, even if they raid reserves , pension funds and other sundry pots of loot in the meantime to avoid doing anything as long as possible.

As an aside ‘I’ll balance the budget (then $800 Billion)’ Reagan saw the debt fly past the $1Trllion,which had taken the US only 200 years to accumulate to just $2.8 Trillion by the time he left his 8 years in office, remarking well into his tenure of President that the debt was big enough to look after itself helpfully.

Finally the last $ 1Trillion of debt rather than taking 200 years took a remarkable 286 Days!

Does anyone believe this debt accumulation is sustainable without major surgery or monetization through depreciation.

@ Bill Casso i think you touched on the real answer, and lots of others picked up on it.

Most of us Pensioners have our Pension pots in Insurance, Bank, Investment Trusts etc, They in turn used what the banks provided, packaged assets to pay an income that in turn paid our pensions.

So QE??? is to provide paper money to pay our pensions, if their was no QE, then there would be no money to pay pensions, and Banks, Pension Funds etc would go bust.

Pensioners would be in the do doo and the game over.

Property boom paid first instalment to Pension
Equity boom is paying the second,
Gold/Silver who buys it from you, try paying for a weekly shop at Tesco with Sovereigns? Cash or Credit only. Plus is your Gold real or fake? Google Fake Gold Bars or we store your gold for you and issue paper scams.

I do not know the answer, just hope I keep getting my Company/State Pension paid each month till I fall of my perch. Till then I shall keep on enjoying life till the grim reaper calls. be it running out of breathe or money, I know not wish. If you need further answers read Ecclesiastics.

QE infinity, yet another violation of our rights. The gov’t constantly violates our rights.
They violate the 1st Amendment by caging protesters and banning books like “America Deceived II”.
They violate the 4th and 5th Amendment by allowing TSA to grope you.
They violate the entire Constitution by starting undeclared wars.
Impeach Obama, support Ron Paul.
Last link of “America Deceived II” before it is completely banned:http://www.amazon.com/America-Deceived-II-Possession-interrogation/dp/1450257437